Real Money

AMD's Misleading Miss

The fourth-quarter warning may not be that portentous.

After Advanced Micro Devices' ( AMD) profit warning on Thursday, there was a sense on the Street that the chipmaker's recent success breaking into Intel's ( INTC) dominant market share is history.

AMD's talk of "significantly lower" microprocessor prices served as proof to many investors that the company was feeling the pain of a reinvigorated Intel, which is wielding a new lineup of chips and aggressive price cuts.

With AMD's shares off 10.2%, or $2.07, at $18.11 in midday trading, many investors appeared to be of the same mind. Intel shares were up 8 cents to $22.

Morgan Stanley and Citigroup both cut their ratings on AMD's stock.

AMD said revenue in the fourth quarter of the year will be up a mere 3% from the third quarter's $1.33 billion in sales -- a good deal lower than the 6% to 13% sequential growth that management previously said represents typical seasonal growth in the fourth quarter.

Analysts were looking for 8% sales growth.

But the beating AMD took in the fourth quarter may not be the dire omen it appears to be.

For one thing, says microprocessor analyst Nathan Brockwood, Intel is benefiting from the fact that it is at the beginning of a product cycle, whereas AMD is fielding a stale product lineup. That should change in mid-2007 when AMD releases its quad-core Barcelona processor.